Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking Statements
Statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operation, as well as in certain other parts of this Quarterly Report on Form 10-Q (as well as information included in oral statements or other written statements made or to be made by the Company) that look forward in time, are forward-looking statements made pursuant to the safe harbor provisions of the Private Litigation Reform Act of 1995. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, expectations, predictions, and assumptions and other statements that are other than statements of historical facts. Although the Company believes such forward-looking statements are reasonable, it can give no assurance that any forward-looking statements will prove to be correct. Such forward-looking statements are subject to, and are qualified by, known and unknown risks, uncertainties and other factors that could cause actual results, performance or achievements to differ materially from those expressed or implied by those statements. These risks, uncertainties and other factors include, but are not limited to the Company’s ability to estimate the impact of competition and of industry consolidation and risks, uncertainties and other factors set forth in the Company’s filings with the Securities and Exchange Commission, including without limitation to our Annual Report on Form 10-K.
The Company undertakes no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Form 10-Q.
Current GES Corporate Operations
GES has developed and deployed proprietary Registration software, which was designed specifically to authenticate and register voters. This proprietary software functions as a data storage and retrieval registration system by cross-referencing eligibility status within a control voter database. In a mail ballot election, the voter’s ID barcode, QR code, or signature on the Business Reply Envelope, can be scanned and the status of that voter is identified. If the voter is not eligible to vote or another ballot for that individual has already been registered in the system, that ballot is marked VOID and removed from the count. In an in-person election, the voter provides their name for look-up in the system. If they have not voted, a signature box pops up on the screen, the voter signs an electronic signature pad and the digital signature is captured next to their name. If a voter tries to vote more than once, an alert will pop up indicating that the voter has already registered, and the voter will not receive an additional ballot. Because we account for every single ballot, the system has multiple reporting options, which include the list of valid envelopes and list of voters whose ballot was void, detailing the reason. Once the voter is authenticated, the identifiers are removed to ensure a secret vote and the ballot is scanned for tabulation.
GES developed proprietary Scanning and Tabulation election software. This software features advanced OMR/OCR/Barcode scanning and tabulation system featuring de-skewing, de-speckling and image correction. The computer hardware was designed to run without Internet or Wi-Fi access and is hard wired, ensuring complete security. The system allows for triple-auditing capabilities, which are; electronically generated tabulation results, .jpeg imaging and storage, and the original physical ballot. This advancement gives GES the ability to tabulate elections faster and more efficiently. As experts in paper/mail ballot elections, GES began deploying this system in our elections in the third quarter of 2017 and it has been operating flawlessly.
In 2020 GES developed, built and implemented a propriety online election voting solution that is compliant with Title IV of the United States Department of Labor Office of Labor-Management Standards.
GES built the platform on one of the most secure global infrastructures Amazon Web Services (AWS) which is a comprehensive, evolving platform provided by Amazon that includes a mixture of infrastructure as a service (IaaS) platform as a service and packaged software (PaaS), and software as a service offerings (SaaS).
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The platform enables GES to protect individual client data, including the ability to encrypt it, move it, and manage retention (if required). All data flowing across the global network interconnects with the GES secured data center and is automatically encrypted at the physical layer before it leaves our secured facilities. Additional encryption layers exist as well.
GES controls where our client data is stored, who can access it, and what resources your organization is utilizing at any given moment. Fine-grain identity and access controls combined with continuous monitoring for near real-time security information ensures that the right resources have the right access at all times, wherever your information is stored.
GES encryption software uses AES 256 with a cryptographic key using a RSA elliptic curve of 4096, which is used to encrypt the communication of the client and the GES server, as well all client data hosted in the server. A six-digit security code, delivered to the voter’s email address provided by the client, must be validated by the prospective voter in order to authenticate the identity of the voter before the voter may access the ballot. After validating the voter, the voter then votes anonymously, so that the identity of the voter and the ballot cast can never be matched.
The GES voting platform verifies that the users does not use the back and forward browser button, a safe mechanism against tampering. Distributed denial of service DDoS protection tools help secure websites and applications and prevent DDoS attacks, which bombard websites with traffic traditionally delivered via “botnets" that are created by networked endpoints connected via malware. The DDoS software protection provides always-on detection and automatic inline mitigations that minimize application downtime and latency.
Management believes there is an opportunity in conducting United States and Foreign Government Elections. GES’ senior Management teams’ primary business for 40 years has been mail/absentee ballot elections. The market for GES conducting paper/mail ballot elections grew exponentially in January of 2017, when first President Barack Obama, and then President Donald Trump designated U.S. Elections “Critical Infrastructure”. The effect of these Executive Orders was to refocus the Department of Homeland Security, and the Elections Assistance Commission to reenergize compliance on U.S. Government elections, and assist by making available resources such as intelligence, funding, training and best practices in election software and hardware, for all 50 States.
On March 23, 2018, President Trump signed the Consolidated Appropriations Act of 2018 into law, which included $380 million in Help America Vote Act (HAVA) grants for states to make election security improvements. Among the authorized uses of the grant funds is the replacement of voting equipment, specifically equipment that does not produce a paper record or that is determined to be at the end of its useful life. Recent published examples are:
| • | On December 20, 2019, President Trump signed the Consolidated Appropriations Act of 2020 into law. The Act includes $425 million in new HAVA funds made available. |
| • | In 2019, Hawaii (SB 166) allocated $789,598 for the purpose of a vote counting system contract. |
| • | In 2019, Georgia issued a $150 million bond package for the replacement of voting equipment statewide. The state also appropriated $12,840,000 from the General Fund for the purpose of financing projects and facilities for the Office of Secretary of State. |
| • | In 2019, Wyoming appropriated $7.5 million into an election readiness account (HB 21). The state's $3 million HAVA allocation will also be placed in this account, the majority of which will go toward replacing outdated voting equipment statewide. |
| • | In 2019, North Dakota enacted SB 2002, which included a one-time appropriation for voting equipment and electronic poll books statewide. The total amount of $11.2 million included $8.2 million in state funds and $3 million in HAVA funds. |
The opportunity for mail/absentee ballots became a page one story in 2020 due to the Coronavirus Pandemic. Subsequent accusations of voter fraud, compounded by President Trump declaring the 2020 U.S. election voting as rigged and fraudulent, has led to almost 40% of the U.S. Electorate believing the 2020 election was fraudulent.
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On October 23, 2019, the Brennan Center has estimated that the national cost for some of the most critical election security measures to be approximately $ 2.2 Billion dollars over the next five years.
Every state has a vote by mail process right now. Voters may request an Absentee Mail Ballot from their County Board of Elections or a Vote by Mail ballot is sent. In either case, our proprietary registration and tabulation software has an immediate need. In the 2016 U.S. Presidential election, approximately 33 Million ballots were cast by mail making up about 25% of the votes. Most individuals think only of the Presidential election every four years as the Election. In reality, municipal Board of Elections throughout the U.S. are conducting elections annually for such elected positions as; Governor, Mayor, City Council, State Assembly, State Senate, Members of U.S. Congress (House every 2 years, Senate every 6) Civil and Criminal Justices, Sheriffs, School Boards, Village Trustees, etc. In short, most State and local municipal Board of Elections are in the market purchasing software and hardware every year.
In the U.S. there are 3,007 counties, 64 parishes, 19 organized boroughs, 11 census areas, 41 independent cities, and the District of Columbia, all of whom must buy updated Election Machines and Software. Each municipal county individually purchases election voting machines under the guidance of their own State’s Secretary of State.
The United States Government, through the Elections Assistance Commission, certifies election software and hardware for use in U.S. Government Elections. On February 10, 2021 the U.S. Election Assistance Commission (EAC) announced the adoption of the Voluntary Voting System Guidelines (VVSG) 2.0. These guidelines have been formulated to improve cyber security, accessibility and usability requirements in the U.S. voting process.
Election Software Developers and Manufactures may also qualify by meeting individual requirements for individual States in the United States.
GES has begun undertaking the following six step benchmarks to qualify for the updated U.S. certification and is also considering individual State certifications;
Step 1 - Voting System Testing, Testing current developed systems to U.S. Federal 2.0 Standards
Step 2 - Technical Data Package Review; Reviews submitted documents against documentation requirements of outside agencies, published standards, or U.S. specifications
Step 3 - Physical Configuration Audit; Examines the documentation of the system against the actual submitted system
Step 4 - System Integration Testing; Executes tests on all components of a system configured as if the system was deployed
Step 5 - Functional Configuration Audit; Examines submitted test data and conducts additional testing to verify submitted system hardware and software described in the documents submitted to the Elections Assistance Commission and the Department of Homeland Security
Step 6 - Security Testing; Performs vulnerability assessments and penetration analysis to assess system vulnerabilities
Trends and Uncertainties
The Company currently has minimal revenues and operations and is investigating potential businesses and companies for acquisition to create and/or acquire a sustainable business. Our ability to acquire or create a sustainable business may be adversely affected by our current financial conditions, availability of capital and/ or loans, general economic conditions which can be cyclical in nature along with prolonged recessionary periods, and other economic and political situations.
The Company has generated recurring losses and cash flow deficits from its operations since inception and has had to continually borrow to continue operations. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The continued operations of the Company are dependent upon its ability to raise additional capital, obtain additional financing and/or generate positive cash flows from operations. As further described in “Liquidity and Capital Resources”, management believes that it will be successful in obtaining additional financing, from which the proceeds will be primarily used to execute its new operating plans. The Company plans to use its available cash and new financing to develop and execute its new business plan and hopefully create and maintain a self-sustaining business. However, the Company can give no assurances that it will be successful in achieving its plans or if financing will be available or, if available, on terms acceptable to the Company, or at all. Should the Company not be successful in obtaining the necessary financing to fund its operations, and ultimately achieve adequate profitability and cash flows from operations, the Company would need to curtail certain or all of its operating activities.
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There are no trends, events or uncertainties that have had or are reasonably expected to have a material impact on the net sales or revenues or income from continuing operations. There are no significant elements of income or loss that do not arise from our continuing operations except for the fair value change on derivative financial instruments and settlement on arbitration.
The rapid advances in computing and telecommunications technology over the past several decades have brought with them increasingly sophisticated methods of delivering administrating elections. Along with these advances, though, have come risks regarding the integrity and privacy of data, and these risks apply to election companies, falling into the general classification of cybersecurity. While it is not possible for anyone to give an absolute guarantee that data will not be compromised, when applicable, the Company shall utilize third-party service providers to secure the Company’s financial and personal data; the Company believes that third-party service providers provide reasonable assurance that the financial and personal data that they hold are secure.
Liquidity and Capital Resources
As of June 30, 2023, the Company has an accumulated deficit of $32,131,090 and a working capital deficit of $9,579,030 Our ability to continue as a going concern depends upon whether we can ultimately attain profitable operations, generate sufficient cash flow to meet our obligations, and obtain additional financing as needed.
For the six months ended June 30, 2023, the Company recorded net loss of $825,042. We recorded an amortization of debt discount of $145,415 a change in fair value of derivative liability of $27,992 and a non-cash expense associated with warrant of $22,396. We had a decrease in accounts payable of $6,406 and prepaid expenses of $1,500. We also had an increase in accrued expenses of 471,652. As a result, we had net cash used in operating activities of $(149,681) for the six months ended June 30, 2023.
For the six months ended June 30, 2023, we received $212,450 as proceeds from the issuance of convertible promissory notes payable and repaid $(100,461) of outstanding convertible promissory notes payable and received $31,687 as proceeds from the issuance of notes payable and repaid $(104,425) of outstanding note payable. We also received an investment from a director of $6,700. As a result, we had net cash provided by financing activities of $45,951.
As of June 30, 2022, the Company has an accumulated deficit of $30,465,093 and a working capital deficit of $8,607,077. Our ability to continue as a going concern depends upon whether we can ultimately attain profitable operations, generate sufficient cash flow to meet our obligations, and obtain additional financing as needed.
For the six months ended June 30, 2022, the Company recorded net loss of $870,242. We recorded an amortization of debt discount of $157,805, a change in fair value of derivative liability of $(46). We also had an decrease in accounts payable of $(16,434) an increase in accrued expenses of $432,560 and a decrease in deferred revenue of $(21,500). As a result, we had net cash used in operating activities of $(317,857) for the six months ended June 30, 2022.
For the six months ended June 30, 2022, we received $376,250 as proceeds from the issuance of convertible promissory notes payable, received $31,687 as proceeds from note payable, repaid $16,744 of notes payable and repaid $43,000 of outstanding convertible note. As a result, for the six months ended June 30, 2023 we had net cash provided by financing activities of $346,506.
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Results of Operations for the Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022
Revenues for the three months ended June 30, 2023 were $237,972 compared to $199,513 for the three months ended June 30, 2022, an increase of $38,459. The majority of our clients hold elections on a three year cycle. The majority of our clients hold elections on a three year cycle. This increase in revenues is due primarily to less elections held during the three month period in 2022
Salaries and benefits totaled $54,253 for the three months ended June 30, 2023 compared to $106,696 for the three months ended June 30, 2022. Actual compensation paid was approximately $54,249. This decrease was due to the employment compensation amended for John Matthews and Kathryn Weisbeck in the 2nd quarter of 2023 and reduced the salary to $2 per quarter per person.
Professional fees for the three months ended June 30, 2023 totaled $131,738 compared to $76,545 for the three months ended June 30, 2022, an increase of $55,193. This increase is primarily due to stock based compensation professional services used during the three months ended June 30, 2023.
For the three months ended June 30, 2023, we incurred marketing and advertising expenses of $25,216 compared to $24,096 in the three months ended June 30, 2022. We incurred software development expenses of $8,244 in 2023 compared to $24,931 in 2022, we incurred printing costs of $33,736 in 2023 compared to $78,367 in 2022, and we incurred general and administrative expenses of $53,214 in 2023 compared to $59,198 in 2022. The decrease in general and administrative expenses was mainly due to a decrease in costs related to the decrease in revenue.
Total operating expenses for the three months ended June 30, 2023 were $321,580, compared to $430,689 for the three months ended June 30, 2022, a decrease of $109,109 principally due to reasons discussed above.
Results of Operations for the Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022
Revenues for the six months ended June 30, 2023 were $344,164 compared to $397,844 for the six months ended June 30, 2022, a decrease of $53,680. The majority of our clients hold elections on a three year cycle. This decrease in revenues is due primarily to less elections held during the six month period in 2023.
Salaries and benefits totaled $160,949 for the six months ended June 30, 2023 compared to $213,393 for the six months ended June 30, 2022. Actual compensation paid was approximately $131,099. This decrease was due to the employment compensation amended for John Matthews and Kathryn Weisbeck in the 2nd quarter of 2023 and reduced the salary to $2 per quarter per person.
Professional fees for the six months ended June 30, 2023 totaled $199,406 compared to $184,525 for the six months ended June 30, 2022, an increase of $14,881. This increase is primarily due to lower professional services during the six months ended June 30, 2022.
For the six months ended June 30, 2023, we incurred marketing and advertising expenses of $62,879 compared to the $65,289 in the six months ended June 30, 2022. We incurred software development expenses of $9,569 in 2023 compared to $32,094 in 2022, we incurred printing costs of $36,138 in 2023 compared to $98,676 in 2022, and we incurred general and administrative expenses of $98,710 in 2023 compared to $131,823 in 2022. The decrease in general and administrative expenses was primarily due to a decrease in costs due to the decrease in revenue.
Total operating expenses for the six months ended June 30, 2023 were $641,512 compared to $854,878 for the six months ended June 30, 2022, a decrease $267,166 principally due to reasons discussed above.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of June 30, 2023.
We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Based on this evaluation, our chief executive officer and chief financial officer have concluded such controls and procedures to be not effective as of June 30, 2023 to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms and to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Evaluation of Changes in Internal Control over Financial Reporting
Our chief executive officer and chief financial officer have evaluated changes in our internal controls over financial reporting that occurred during the six months ended June 30, 2023. Based on that evaluation, our chief executive officer and chief financial officer, or those persons performing similar functions, did not identify any change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Important Considerations
The effectiveness of our disclosure controls and procedures and our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time.
Because of these limitations, there can be no assurance that any system of disclosure controls and procedures or internal control over financial reporting will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company may be involved in legal proceedings in the ordinary course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance.
On December 26, 2017, the Company entered into a settlement agreement with a prior attorney with regards to outstanding legal fees owed. Pursuant to this settlement agreement, the Company paid $25,000 on January 5, 2018, and $25,000 on February 5, 2018, and was required to pay an additional $200,000 during 2018. On December 14, 2020, parties amended the settlement agreement to state that the Company shall pay the prior attorney Two Hundred Nineteen Thousand, Five Hundred and Seventy Six Dollars ($219,576). On January 27, 2021, the Company made a payment of $5,000, on April 12, 2021, the Company made a payment of $15,000, on August 6, 2021, the Company made a payment of $5,000. On October 1, 2021, the Company made a payment of $5,000 and on November 12, 2021, the Company made a payment of $10,000. On January 7, 2022, the Company made a payment of $5,000 and on February 18, 2022, the Company made a payment of $5,000. On May 5,2022 the Company made payments of $5,000 and on June 22, 2022, the Company made payments of $5,000. On January 13, 2023, the Company made a payment of $5,000.
On October 16, 2020, the Company’s subsidiary, Tidewater Energy Group Corp. was named as a defendant in a lawsuit filed in District Court in and For Tulsa County, State of Oklahoma, CJ-2020-3172. On January 13, 2021, the plaintiffs added the Company to the lawsuit. The plaintiffs are seeking damages, disgorgement and specific performance relief relating to a Purchase and Sale Agreement to purchase all of the membership interests in Foster Energy. The Company has obtained counsel to dispute the charges. On March 18, 2021, the Company filed a motion to dismiss and brief in support. The Company asserted that the plaintiffs’ claims are entirely without merit as the Company was not a party to the Purchase and Sale Agreement or the related non-disclosure agreement. Tidewater concurrently filed a motion to dismiss based on legal remedies available to Tidewater. On December 7, 2022, the case was dismissed with each party bearing their own attorney fees and costs.
On March 31, 2022, the Company was named as a defendant in a lawsuit filed in the Supreme Court of the State of New York, Index No. 651531/2002. The plaintiff has alleged breach of contract and unjust enrichment. The plaintiff is seeking damages relating to a plaintiff’s prior employment agreement with the Company. The Company has obtained counsel to dispute the charges. On July 19, 2023 the Company entered into a settlement agreement with the plaintiff, requiring the Company to pay $30,000.
On May 1, 2023, Brett Pezzuto and Christian Pezzuto filed a complaint in the United States District Court for the Southern District of New York (Civil Action No. 1:23-cv-03591) against the Company and GES for breach of contract for failures to pay monies owned pursuant to promissory notes and for not providing plaintiffs an opportunity to convert their promissory notes to common stock. The plaintiffs are asking to money damages in the aggregate amount of $1,565,610. The Company and GES have obtained legal counsel to dispute the charges. As of June 30, 2023, no final resolution has been reached.
On May 22, 2023, Lim Chap Huat filed a Memorandum of Law in Support of Plaintiff’s Motion for Summary Judgment in Lieu of Complaint Pursuant to CPLR 3213 in the Supreme Court of the State of New York (Index No. 652474/2023) against the Company. The Memorandum of Law seeks summary judgment on a promissory note made by the Company in the principal amount of $200,000, plus interest at the rate of 12%, as well as attorney’s fees ad costs incurred, to recover unpaid monies owned by the Company. The Company has obtained legal counsel to dispute the charges. As of June 30, 2023, no final resolution has been reached.
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Item 1A. Risk Factors
Not Applicable
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the six months ended June 30, 2023, the Company issued 175,172,728 shares of common stock for convertible notes principal and accrued interest of $169,159 and issued 59,322,799 shares of common stock in connection with a services agreements at fair value of $77,937.
During the three months ended March 31, 2023, the Company issued 67,081,217 shares of common stock for convertible notes principal and accrued interest of $96,444 and issued 23,603,891 shares of common stock in connection with a cashless exercise of warrant.
On July 27, 2022, the Company authorized the issuance of 480,000 shares Series C Preferred Stock at $.001 per share as follows:
120,000 Series C Preferred Shares - John Matthews, CEO/CFO
120,000 Series C Preferred Shares – Martin Doane, Director
120,000 Series C Preferred Shares – Facundo Bacardi, Director
120,000 Series C Preferred Share – Kathryn Weisbeck, Director of Public Relations/Marketing
The above shares were issued in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, for transactions not involving a public offering.
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Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
Item 6. Exhibits
The following is a complete list of exhibits filed as part of the Quarterly Report on Form 10-Q, some of which are incorporated herein by reference from the reports, registration statements and other filings of the issuer with the Securities and Exchange Commission, as referenced below:
Exhibit 31* - Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32* - Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS - XBRL Instance Document
101.SCH - XBRL Taxonomy Extension Schema Document
101.CAL - XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF - XBRL Taxonomy Extension Definition Linkbase Document
101.LAB - XBRL Taxonomy Extension Label Linkbase Document
101.PRE - XBRL Taxonomy Extension Presentation Linkbase Document
*Filed Herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| GLOBAL ARENA HOLDING, INC. a Delaware corporation |
| |
Date: September 1, 2023 | By: | /s/ JOHN MATTHEWS |
| | John Matthews |
| | Chief Executive Officer Chief Financial Officer |
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